Fed’s Insurance Hire Defended World Without Fed Oversight

Big insurance companies have been worried for months about new rules pending at the Federal Reserve, but the appointment of an insurance expert to a senior Fed post might give them reason to breathe easier.

One of the chief complaints of Prudential Financial Inc., Metlife Inc., and others facing Fed regulations is that the Fed lacks experience regulating the insurance sector. If the Fed were to make insurers maintain capital levels like banks, for instance, insurers say their businesses would suffer.

Fed officials have responded that they understand the differences between the two industries. Still, most of the Fed’s senior officials have spent their careers overseeing banks.

Thomas Sullivan, named on Monday the Fed’s new “senior advisor” in charge of insurance oversight, has a different background. He spent more than 20 years at insurance firm The Hartford Financial Services Group, Inc. and more than three years supervising insurers as Connecticut’s Insurance Commissioner. Though his new role won’t give him the final say on decisions affecting big insurance firms, it will put him in the room for those conversations.

In an interview Monday, Mr. Sullivan didn’t directly answer some questions about the Fed’s intentions for insurers. But in 2009, he went to Congress to make the case that states were doing a good job of regulating insurance companies.

“State regulation of insurance has protected insurance consumers and companies from the worst of the financial crisis,” Mr. Sullivan said in the testimony, which has given on behalf of the National Association of Insurance Commissioners. “The insurance sector is critically important, but the business of insurance has not created the kinds of unrestrained and unregulated systemic risks that reform efforts seek to manage or prevent.”

Those “reform efforts” eventually became the 2010 Dodd-Frank law, which brought some insurance firms – those deemed “systemically important” by U.S. regulators and those that own banks – under the Fed’s watchful eye. The industry has been pressuring the Fed for months to adopt a regime that big insurance companies can stomach.

Mr. Sullivan’s testimony also said supervision of large, complex firms needed improvement. He said Monday the Fed “needs to look at what’s in place today,” referring to state regulation, “but it still has to carry out its own statutory mission.”

“No regulatory regime is perfect,” he said.

In a statement Monday, the National Association of Insurance Commissioners, which represents state regulators, said Mr. Sullivan’s “strong regulatory experience, comprehension of the insurance sector, and thorough understanding” of the state-based regulation of the insurance industry.